When practice management gets tough

While financial advice practice management has been turned on its head since the Royal Commission with the raft of compliance and education requirements along with rising costs, advisers say the shift has already been in progress ever since the 2018 hearings.

Not only this, while the average practice manager and adviser has been dealing with issues that predate the Royal Commission, the COVID-19 pandemic has created a further burden. 

What is clear is that despite all the barriers that have been put up, all financial advisers and practice managers want is to be able to help their clients in a way that is personal, valuable, and simple. 

However, simple is currently not on the cards given the industry is overseen by eight different regulators, each requiring them to fulfil a mound of compliance that is taking time away from clients.

REGULATORY IMPACT

Focus Wealth Advisers principal and financial adviser, Eleanor Dartnall, said the “bald facts” recited in the Royal Commission hearings “did not resonate in the hearts and minds of the ethical adviser” which made up the greater number of all advisers.

“The outcome however, impacted every one of us. The heavy compliance regimes updated constantly to meet the concerns of licensees and the Australian Securities and Investments Commission [ASIC] have created a work burden that is hard to manage. It also brings with it a level of stress that has to be managed,” she said.

“The stress for the practice manager is that, meeting the demands of increased reporting and a vastly-increased level of documentation for each and every client, must not overshadow the focus on the clients themselves, their concerns and goals. 

“This is particularly difficult under the additional burden that COVID-19 brings to the practice as we are forced, in many cases, to move from face-to-face meetings to the offering of Zoom meetings or phone calls.”

Dartnall noted that the lack of face-to-face meetings depleted the opportunity to be empathetic with clients and meant advisers appeared more “businesslike” to reach a resolution more quickly.

“What is left unsaid lingers and arises in the next face-to-face catch up and carefully nurtured relationships can become eroded,” she said.

Similarly, Sofcorp Wealth partner and financial adviser, Tracey Sofra, said the recent regulatory changes had an “absolutely horrendous” impact given all the compliance requirements.

“Making sure we’re compliant has been a huge task and has created a massive amount of stress and takes away from the advice piece,” she said.

“We’d like to change people’s lives and do financial planning and not just do a continuing tick list. In order to do all of those things – we’ve turned to technology.”

Sofra said she wanted the regulators to come to their senses and to only be regulated by one entity. 

She noted that all the time spent on administration and compliance tasks had also taken away the satisfaction of being a planner. 

Sofra said her firm ramped up their support systems by outsourcing a lot of the admin work. It had two overseas staff members that did all the basic non-client facing administration and in-house staff members too. 

Lifespan Partnership chief executive, Eugene Ardino, said he was a huge believer that advice should be made accessible to everyone.

“It breaks my heart to see as a result of a lot of reforms over the last 10 years many clients that in the past could access an adviser won’t be able to. I’m tired of Government saying they want to make advice more accessible and doing things that achieve the exact opposite,” he said.

“The service advisers deliver need to be recognised as important and risky. When events happen, advisers have to explain why to clients on topics such as market downturns, the Global Financial Crisis, pandemics, etc. It’s an incredibly rewarding thing but is incredibly difficult and stressful and really requires you to stick your neck out.

“The role requires you to give opinions on things that are uncertain rather than interpreting laws and rules.”

RISING COSTS OF GIVING ADVICE

Ardino noted that advisers should not be ashamed of having to raise fees to reflect the costs of giving advice as it was a difficult but important profession.

Centrepoint Alliance advice group executive, Paul Cullen, said one of the biggest issues practices were currently facing was repricing and reviewing the services advisers were providing. He said the whole economics of practices had changed in terms of revenue sources and costs. 

“There are advisers looking at clients who don’t generate the revenue that they need to justify an ongoing service arrangement and they’re either changing that towards a transaction-based relationship and with no recurring fee, or they’re increasing the cost or the price of that service,” Cullen said. 

“People have got out of the doom and gloom of the last few years and the practices that are left, I think they can see pretty exciting opportunities in the future for themselves. For them, it’s around ‘well I’ve got to change the business so I can actually capture the opportunity that I see’.”

Not only have licensee fees risen over the past few years, the ASIC levy has risen over 340% in the last four years largely to cover the regulator’s enforcement activity. The activity is often against large institutions who have exited the industry rather than small advice practices. However, the small practices are bearing the brunt of the costs. 

The conversations around fee changes, Cullen said, were challenging.

“Many advisers are having to make calls around clients that they’ve dealt with for a long time, it’s difficult for them to do, you know, as they are used to looking after people but the revenue profiles have changed,” he said.

“Both advisers and clients are really not enjoying the conversation when a client slips into the zone where they just don’t generate enough revenue to justify the service package.

“Practices are also downsizing their client base in this way but at the same time many practices are super busy with new clients so they have the opportunity to replenish their ongoing service client base.”

Sofra said her practice increased client fees for a variety of reasons including the fact that their fees had not risen over the past six to seven years and that they had recently changed dealer groups which gave an opportunity to review the entire business. 

“It really is a matter of reviewing our existing client base – what does that look like? What should it be moving forward? And how are we going to price it due to the fact that the cost of advice has gone up, and because we’ve had to employ more people just to keep up with the admin side of things,” she said.

“So there has to be an element of the price increase to reflect that but that isn’t the only reason.”

Sofra said while there were extraordinarily frustrating days given all the barriers, it was very hard to walk away from being an adviser. 

“I’ve had clients that I’ve been advising for 28 years and if you can imagine that relationship – you’re heavily involved in every aspect of their lives so you can’t just walk away from that,” she said.

“When you have that relationship and you know that you can make a difference and help people you just keep going – why wouldn’t you?”

JUSTIFYING FEE INCREASES

Ardino said the advisers who were not charging enough were those that had been in the industry for a long time and found it difficult to raise the fees of long-term clients.

However, younger advisers had more confidence to charge what was fair to their business.

He said advisers needed to convince themselves what they were charging was fair, worthwhile, and reasonable.

“You’ll get a mixed reaction and I wouldn’t just write out to everybody. I would have a conversation with impacted clients and listen to feedback. If you lose a few clients but your fees increase then it’s still a positive outcome as it is potentially the same or similar revenue but across less clients,” he said.

Ardino said given advisers had to make sure clients were signed up to fees every year now, it was more work as they had to prepare, send them a fee disclosure statement, and follow up. Here, he said, advisers need to ensure all the extra work was factored into their fees.

“You have to sign up clients every year and you have to make sure you can deliver enough service over the 12-month period to get them to engage and sign up easily. If it takes a million follow ups to get a client to sign up then it’s probably not going to be worthwhile. Generally, this is a challenge for lower fee-paying clients,” he said.

“If it takes $3,000 a year or more then it shouldn’t be too difficult to deliver that level of service and engagement from a commercial point of view to get them to sign up to fees every year.

“You need to look at your service proposition to make sure it is still viable to have smaller clients where you’re going to have to go through this process each year. 

“One should be factoring in how much time they’ve spent when determining how much a client should pay and in some cases you may need to restructure the volume of service that you provide to those clients. But advisers need to ensure to take into account the value clients get from those services as well.”

Ardino said if an adviser thought the value they brought to particular clients was more than others then it was appropriate to charge more even if the time taken might not reflect that.

EFFICIENCIES 

To find efficiencies and lower costs, Sofra said advice practices should “automate, automate, automate”. 

Sofra said technology was a game changer for any business and just because people did not accept or understand that the technology they were looking for existed, it did not mean that it did not exist. 

“Your job is to find whatever exists to make your business better, brighter and to provide the best service possible. Once you’ve found that and you don’t get complacent, you’ll be continuously improving or looking for better options. Definitely automate and outsource,” she said.

Dartnall said that while her practice used technology to create efficiencies, it was important not to take away the personal side of things as one size did not fit all. 
Recently, during a Senate committee hearing, a parliamentarian called the generation of a 100-page statement of advice (SoA) as an ‘absurd’ way to satisfy lawyers after it was explained that compliance was a huge time consuming burden for advisers.

However, Dartnall said there were many solutions being found around digital documents. Dartnall’s approach has been the development of a 'Guide to the statement of advice' booklet which removed all important generic material from the SoA.

The result had been an SoA of around 12 to 16 pages with the client able to focus on the facts that related to them personally and a greater ability to provide informed consent to the advice given.

Ardino said advisers need to look for efficiencies in every part of the advice process such as SoA generation, research, file keeping and portfolio management.

He noted managed accounts dramatically reduced the cost to fee paying clients but warned advisers not to cut corners as the industry was very unforgiving when mistakes were made. 

“Advisers don’t make the rules but they have to work with the framework they are given which is something the government has to take accountability for. Until they change the framework to accommodate that, advisers have to work with what they’re given,” he said.

Despite all the hard yards, Sofra said advisers needed to keep going and not to give up.

“If we lose all the good ones out there the industry that will be really sad,” she said.

“It will be such a loss to the industry and Australia if we lose all the planners that have had all those years of knowledge and expertise. It will be a massive loss.”